Chinese manufacturing contracted in December for the first time in seven months in another sign the slowdown in the world’s No. 2 economy is quickening, according to a survey of factories released on Tuesday.
HSBC’s preliminary purchasing managers’ index fell to a seven-month low of 49.5 from 50 in November, based on a 100-point scale on which numbers above 50 indicate expansion. It was the first time the index dipped below 50 since May, when it was 49.4.
It’s the latest in a string of weak data on China’s economy, which is struggling to meet its full-year growth target amid weak global demand. China’s economy expanded at a five-year low of 7.3 percent last quarter, below the official full-year target of 7.5 percent.
The report boosts expectations that policy-makers will add stimulus in order to prevent the economy from stalling.
China’s communist leaders, who have expressed confidence they can manage the slowdown, cut interest rates unexpectedly in November in a sign that they were worried that growth was falling too sharply.
“The manufacturing slowdown continues in December and points to a weak ending for 2014,” HSBC chief China economist Qu Hongbin said. “The rising disinflationary pressures, which fundamentally reflect
weak demand, warrant further monetary easing in the coming months.”
Other recent official data for November showed that growth in industrial production slowed to 7.2 percent, while imports contracted unexpectedly.
The report’s final version is due on January 2. The reading shows that China’s downturn deepened in December, even after efforts by the central bank to ease monetary conditions, including with a cut to benchmark interest rates last month. Measures for
output, new orders, employment and input and output prices all declined, the report showed.
“They are moving to more of a
services-based consumption model and that’s a slower growth model than the hyper growth of manufacturing that led exports and investment,” Stephen Roach, a senior fellow at Yale University and former non-executive chairman for Morgan Stanley in Asia, said in an interview with Angie Lau on Tuesday on Bloomberg Television in Hong Kong.
China’s interest-rate swap erased a gain after the PMI report. The one-year swap is unchanged at 3.37 percent in Shanghai, after earlier climbing as high as 3.41 percent, according to data compiled by Bloomberg. The Shanghai Composite Index rose 0.5 percent at 9:57 a.m. local time.
“The data highlights intensifying downward pressure on the manufacturing sector,” said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. “The situation calls for action from policy-makers to ensure that soft landing continues and that the slowdown does not become too deep.”
Slowing growth
Foreign direct investment surged 22.2 percent in November from a year earlier, a report from the Ministry of Commerce showed on Tuesday. For the January-through-November period, investment climbed 0.7 percent from a year earlier.
China’s economy slowed in November as factory shutdowns exacerbated weaker demand. Bloomberg’s gross domestic product tracker came in at 6.78 percent year-on-year in November, down from 6.91 percent in October and a fourth month below 7 percent, according to a preliminary reading.
Factory production rose 7.2 percent from a year earlier, retail sales gained 11.7 percent, and investment in fixed assets expanded 15.8 percent in January through November from a year earlier, official data showed last week. The government ordered some factories to close in Beijing and surrounding provinces during the Asia-Pacific Economic Cooperation gathering in early November to curb pollution.
with Bloomberg News